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Closing on a house is a thrilling time for buyers: Once you’ve found the one and have an accepted offer, you’re ready to grab the keys and make it your own.
But closing time can also be plenty to rack your nerves. That’s because there’s still a lot that can go wrong at closing before you reach the finish line — from possibilities you’d considered (and feared) to surprises you never even imagined.
When you’re buying a house, the list of what can go wrong at closing includes everything from issues with the mortgage loan and buyer’s credit, insurance snags, appraisal problems, title claims, and events beyond everyone’s control (such as natural disasters, or buyer or seller illness or death).
Here’s a rundown of what can go wrong at closing — and what to do if you face any of these problems (or better yet, how to avoid them in the first place).
What can go wrong on the buyer’s side at closing
Problem: Your credit took a nosedive since you applied for a loan
You can avoid getting into this situation by avoiding making other big purchases or applying for other loans once you are approved for a mortgage and under contract. These are decisions that can impact your credit history, a major factor in your mortgage. Lenders can and do recheck credit right before closing time — so it’s a better bet just to wait on some of those other big financial decisions until after close.
“One big thing that could delay closing is if, say, someone goes out two weeks before they close and they buy a car — or they buy all new furniture,” explains Pete Veres, a top-selling agent with 20 years of experience in Albuquerque, New Mexico. This can radically alter their debt-to-income ratio and jeopardize the whole deal.
Problem: You lost your job
First, when deciding to purchase a home, you’ll naturally try to make sure you’re at a stable point in your career. And ideally, you’ll get preapproved for a mortgage instead of just prequalifying.
But things do happen: If you lose your job in the process of closing, disclose that as soon as you can (if you don’t, you could be committing mortgage fraud). If you can’t secure new employment swiftly, you might be able to add a cosigner to your loan and count that person’s income toward your purchase. Talk to your agent and loan officer about these options.
Problem: There’s an issue with the Closing Disclosure
By law, you will get your Closing Disclosure three days before closing. Go over it closely, taking a detailed look at your mortgage terms with your broker to make sure you clearly understand everything. Alert your agent immediately if there’s a problem.
Problem: Names are misspelled or inconsistent on your loan documents
This one may seem simple, but it’s actually among the more common problems that can cause a delay in closing. You’ll also get these documents three days before closing, by law. So to avoid a last-minute situation, examine every shred of paperwork on your loan documents in advance — double- and triple-checking to make sure every T is crossed and every I is dotted.
Make sure first, middle, and last names are spelled correctly and are consistent across all documents. If you spot a problem in advance, you can address the situation before it jams up that final closing process.
Problem: Wire fraud (money goes missing)
This one might seem outlandish — but cybersecurity is a major issue and you should always tread with caution to avoid scams. In the case of mortgage wire fraud, scammers impersonate the title company and send fraudulent wiring instructions via email for buyers to wire their down payment and closing costs to. If that happens, your funds could go MIA just as you need them to close.
To protect yourself against this scam (also called phishing), be sure to verify all wiring instructions over the phone with your title company and lender before wiring any money.
Problem: You don’t know how to make your down payment
If you’ve budgeted for that down payment, you might think you’re good to go. But the transfer of a big sum could be delayed on the bank’s end. You can steer clear of this issue by bringing your down payment in the form of a certified or cashier’s check — but don’t even try using a personal check; It won’t work.
Otherwise, you can arrange for a wire or bank transfer of funds that gets to the closing agent early (most likely via the title company). If you’re not sure of the exact amount, transfer enough that there’s a cushion. Don’t worry: You will be refunded any extra.
Problem: Your lender can’t meet the promised timeline
The recent increase in interest rates in the spring of 2022 has challenged lenders to find ways to become more competitive, explains Claudia Cobreiro, a partner at Feinstein Mendez & Cobreiro, P.A., a boutique law firm in Miami, Florida, where she specializes in real estate law. As a way to hook new business, some lenders are promising closings faster than they can typically get the file approved.
“This can sometimes lead to a situation where the buyer is in breach of the contract because they are past the agreed-upon closing date for the purchase, thereby risking their escrow deposit if the sellers do not allow flexibility.”
Cobreiro says this is “especially problematic” when the seller is also simultaneously in the process of purchasing a property, “as delays with this first transaction’s timeline can cause delays and similar difficulties in the parallel transaction.”
Problem: You didn’t budget for closing costs and are caught flat-footed
Top-selling Mississippi-based agent Steve Houck suggests creating a cushion in your budget to avoid any potential delays at closing.
“There are a few loans where you can funnel part of your closing costs into your mortgage, but that’s very rare,” Houck says. “So if it were my buyer, I would budget whatever your good-faith estimate says that you’ll be bringing to closing and then add a little cushion. Because if you run short of money at the closing table, you’re not going to close.”
Problem: There’s an issue with insurance
Avoid insurance issues at closing by nipping them in the bud much earlier in the process. “As soon as my clients have a contract on a house, I suggest they call and get an insurance quote immediately,” Houck says. “That way they’ll know way ahead of time what the insurance quote is going to be.”
Another important reason to do that, he says: “FEMA flood maps are changed every two years. Suppose that property has become something that requires flood insurance and the seller didn’t know it because they never had to buy flood insurance — that could create a problem. So get a contract, then call for a home inspection, and then call the insurance company — those are the calls that you make before you do anything else.”
In a traditional market, buyers won’t want to close until the issue is resolved. You want to do a walkthrough two days before closing — not merely hours before — so if something’s not right, you have time to resolve it.
- Pete Veres Real Estate AgentClosePete Veres Real Estate Agent at Re/max Select Currently accepting new clients
- Years of Experience 21
- Transactions 834
- Average Price Point $332k
- Single Family Homes 744
What can go wrong on the seller’s side at closing
Problem: There are liens or debts on the title
There’s going to be a delay if your title company discovers any liens on the home — or discovers that it’s the subject of a lawsuit. So you need to make sure you’re going into the closing process with a title that is totally free and clear of any problems — or clouds.
In order to do that, you need to read the preliminary title report that the title company completed shortly after escrow opened. That likely went right to your lender, so ask to get a copy from either them or directly from the title company. Get it ASAP and look it over thoroughly.
“There are certain properties I would immediately order a title search before I do anything else: A foreclosure, a short sale, a bankruptcy, an estate sale,” Houck says. “These are the properties where there’s a strong possibility there could be a cloud on the title. Under those circumstances, you’d want to do it immediately on contact.”
Cobreiro explains that title defects are “one of the most common roadblocks that arise in transactions, regardless of market conditions,” noting the majority of sellers have no idea about these problems until they are under contract for the property. “While some of these issues are quick to resolve — such as monetary fines against the property — some defects could require attorney intervention or even litigation (such as active probate cases that involve the property).”
Problem: The seller doesn’t actually have the right to sell the property
What if you get to the closing table… and it turns out the seller doesn’t actually have the full rights to make the sale? It can happen — and closing is a bad time to learn about a missing heir, forgery, fraud, or another illegal deed in the history of the title.
Veres says it’s never happened on his watch, citing his relationship with a top-quality title company. “We do all the due diligence upfront,” he says. “But I’ve heard horror stories where someone didn’t say that there was a spouse involved.” If another person has any claim to the property, this will need to be resolved before closing and this could definitely add time to the process.
Let’s say the seller took something they were supposed to leave, or left something they were supposed to take. Perhaps there’s damage done to the house from moving things out. Maybe inspection repairs haven’t been completed as promised or expected.
If any of these things happen, the buyer’s agent should work with the seller’s agent right away to resolve the issue. The agents should also negotiate the fair cost of making the seller pay to cover the concern. This might involve placing some of the seller’s proceeds in escrow until the matter is resolved, or making an arrangement for the seller to pay more at closing to cover expenses associated with the problem.
“In a traditional market, buyers won’t want to close until the issue is resolved,” Veres says. “You want to do a walkthrough two days before closing — not merely hours before — so if something’s not right, you have time to resolve it.”
What can go wrong when an act of fate impacts either side
Problem: You crossed your wires moving in
Let’s say the buyer is there before the seller is ready to leave — well, that’s a problem. Avoid that unpleasant situation by creating a contract that addresses it in advance.
Houck explains that most contracts are written in one of three different ways. The most common is known as “possession with date.” In this type of contract, “The buyer takes possession immediately upon closing and full funding,” Houck explains. “If the seller is not out of the house, then they have breached the contract and they face a certain legal liability.”
If the seller knows they cannot vacate the property immediately upon closing, they might instead want to use a second type of contract clause known as a “post-possession agreement.” In this type, the seller can retain possession of the property for a certain amount of time — for example, 48 hours after closing.
Houck also explains a third type of contract stipulation, known as a “Preclosing possession addendum” that will let the buyer move in early. “But it’s not a good idea, in my opinion,” he says. “Let’s say the buyer loses his job and he can’t get a mortgage. Well, he’s in the house — so then you’ve got legal problems.”
Problem: The seller dies, or the buyer dies
You can minimize the complexities of this unfortunate situation by writing the possibility into the contract, Houck says.
“The contracts that we use refer to the buyer and the seller, saying that the contractual obligations go to the heirs if one of the parties — buyer or seller — passes away prior to closing,” he says. “Not all contracts have that clause, and if they don’t, then you could have a potential legal problem. Every contract I write has got that clause in there, and it’s very important.”
Problem: Somebody gets sick
Especially in the midst of the COVID-19 pandemic, it’s not unlikely that either the buyer or the seller could get sick and this could cause a hiccup that delays closing. Generally, closing documents are signed with a notary and if one of the parties of the transaction gets sick, signing would need to be delayed until it is safe to conduct an in-person signing. Final walkthroughs are also typically conducted in person.
But there are workarounds that can salvage these situations. “We could do a virtual walkthrough,” Veres explains. “I’ve had situations where people with symptoms would stay in the car, and parties would take turns carefully entering.”
Problem: Someone forgets their ID — or it’s expired
Imagine planning a dream international vacation for months — even years — and then arriving at the airport only to be turned away because you forgot to bring your passport or the document turns out to be expired. This can happen at closing, too, so make sure your legal identification is both handy and valid.
In order to notarize your final closing documents, your notary will need to see a valid form of identification such as a current drivers license, state ID card, or passport.
Problem: Someone changes their mind
Most contracts are worded such that if the buyer changes their mind, they forfeit their earnest money, and the seller has the right to sue them for specific performance. That is to say, the buyer would be legally obligated to buy the house in question if the seller wins the lawsuit.
But, Houck explains, “Very rarely is a seller going to sue for specific performance, for the reason that you can’t put a house on the market if it’s under litigation. So the buyer would just lose their earnest money — their deposit.”
If the seller defaults, the buyer’s options are open. “In most cases, the buyer can request their earnest money back and request the seller pay them an amount equal to their earnest money,” Houck explains. “Once again, a buyer can sue — but you’re not moving down the street to buy another house if there’s a trial coming up.” So that’s an unlikely scenario.
Problem: A natural disaster occurs
In this case — as in most others — it depends on how the contract is worded, explains Houck, who had several closings coming up when Hurricane Katrina hit New Orleans. “Virtually all contracts have a clause saying that if a property is damaged by fire, wind storm, or natural disaster, then it’s the buyer’s option whether they decide to proceed with it or not,” he explains.
Immediately following a natural disaster like Katrina, the bank will send their appraiser back to all properties pending closing to make sure there’s no damage — and if there is damage, that it’s fixed.
“If the damage is minor — if it blew a few roof shingles off and the seller replaced them — then obviously the buyer is going to proceed,” Houck explains. “But it’s the buyer’s option.”
What can go wrong before closing
As you now know, there are many things that can go wrong at closing. But, what about before? Here are some of the most common hangups that can stall a transaction before you can even spot the finish line in the distance.
Problem: Your real estate agent drops the ball somewhere
Especially as so many new — and inexperienced — agents have flocked to the real estate business during historically hot market conditions, there’s plenty of room for human errors that stand to delay or even derail the closing process down the road.
Sometimes, hangups can even result from an agent’s simple failure to communicate. “We have a lot of new agents in our market, and some of them don’t know how to communicate all the details to both the title company and to the buyers,” Veres explains. “As simple as it sounds, they might not give directions to the buyers specifying, ‘Hey, you’ve got to bring a certified check to the closing.’”
Problem: The appraisal comes in low
When you get under contract to purchase a home, your lender will order an appraisal to verify that the home is worth the amount of money that you are paying for it. A lender might not lend you more than the home is worth so if the appraisal comes in low (lower than your purchase price), you might have a problem.
Don’t panic — buyers have a few different options to consider if the home they are purchasing does not appraise at the same value as the purchase price. Buyers can opt to provide more cash to cover the gap between the appraised value and purchase price, they can dispute the appraisal and request a reconsideration of value, or they can try to negotiate with the seller to lower the purchase price to match the appraised value.
Problem: There’s a problem with an inspection
Let’s say an inspector finds the house has a serious termite infestation or a major foundation problem, and the seller has no plans to work with the buyer on the sale price after the discovery — that could seriously disrupt closing. If an inspection contingency was included in the purchase contract, the buyer can walk away from the sale if the inspection uncovers something ugly.
If an inspection reveals something that the seller is willing to fix, the closing timeline might need to be negotiated to accommodate for the time it will take the seller to complete the repair.
Problem: Seller disclosures reveal something the buyer can’t accept
Maybe the home looks like a dream and the buyer couldn’t wait to close the deal. But at the point of the disclosure report, the buyer learns the home’s basement has flooded three times in the past five years. The purpose of the seller’s disclosure is to make sure that the buyer is making an informed purchase of the property — this disclosure could, however, inform a buyer’s choice to walk away.
Problem: The buyer learns about an easement, boundary, or survey dispute that they are not comfortable with
Similarly, a buyer won’t be able to change an issue with the property line. So learning that it’s disputed with their nextdoor neighbor, or is in any way different from the original expectation, can kill the deal before closing.
Problem: You have a home sale contingency — and your house hasn’t sold
If the buyer included a home sale contingency in their offer, selling their current home is a condition of closing on a new one. And if it doesn’t sell, the deal might be off or delayed. To avoid this predicament, HomeLight’s Trade In will get you an all-cash offer from HomeLight on your existing home before purchasing your new one. This enables you to purchase without a home sale contingency and control when you move.
Problem: You missed a date in the contract and need to push back the closing date
If a buyer needs to push back the closing date, a seller might be inclined to accommodate… Or they might not.
As properties have been flying off the market amid historically low inventory and interest rates in recent years, “I’ve come across multiple cases where the seller realizes that their property has appreciated in the time frame between them signing a contract to sell and the date of the closing for the sale,” Cobreiro says. “That typically leads to the seller being less flexible in situations where the buyer needs accommodating.”
In this case, the seller may elect to not give an extension on the closing date when the lender is delayed. After all, getting out of the original contract could allow the seller to enter into a new contract with a new buyer at a higher purchase price for the same property.
“More problematically, however, some sellers have tried to change their minds about selling altogether once they are already in contract,” Cobreiro says, “In such cases, a properly drafted real estate contract or form (depending on the state) and having proper representation are critical tools to help the buying party to get the transaction back on track and over the finish line.”
In the end, all sorts of potential scenarios can delay closing — on the seller’s side, the buyer’s side, or because of unfortunate events that can affect either side unexpectedly. But if you can anticipate the possibilities, you’ll be in the best possible position to wrap up your closing and get those keys… no matter what comes your way in the process.
Header Image Source: (Cytonn Photography / Unsplash)